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May 13th, 2011

The GFE is a “waste of time”

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iStock_Mortgage ApplicationAt least that’s how some mortgage borrowers feel about the Good Faith Estimate.

According to a recent survey from ING Direct, the document that has been designed–and redesigned several times–to help homebuyers estimate the costs associated with their mortgage, apparently isn’t accomplishing what it set out to do. Fifty six percent of those surveyed admitted that they didn’t use the document for its original purpose: to compare mortgage offers.

It’s kind of hard to believe that in the wake of what the housing market recently went through and is still going through, homebuyers aren’t taking the time to ensure they’re getting the best deal available and that they fully understand the costs associated with the largest purchase of their lives.

It’s going to take some effort

Granted, despite its numerous redesigns, consumers have expressed time and again that the GFE remains a complicated document:

The Good Faith Estimate itself could be partly to blame for homeowners’ lack of enthusiasm to comparison shop for a mortgage. Even after the federal government’s attempt to streamline the GFE, more than one in three (36 percent) homeowners described the GFE as being “complicated” or a “waste of time.” Although some homeowners described the GFE as being “simple” or “easy to understand,” 68 percent of homeowners surveyed were unable to correctly identify, for example, the purpose of the Title Services charge on the GFE.

However, complicated or not, it seems some homebuyers need to show a little more effort. According to ING, “53 percent of homeowners spent 30 minutes or less reading and reviewing the GFE.  One in ten (11 percent) homeowners never reviewed the document.”

The GFE is partially to blame

“It’s worth noting that the present regulation does not require lenders to provide the GFE upfront and BEFORE an application is placed, which would really facilitate comparison shopping,” explains HSH.com’s VP Keith Gumbinger.

“Rather, it isn’t required to be provided UNTIL a borrower HAS ALREADY APPLIED for the mortgage (and then, up to three days after) when there is no longer likely to be any shopping at all. This renders it less-than-valuable as a shopping tool.

“This may be why few bother to read it…they have already made their choice and AREN’T shopping for a loan any longer.”

A new tool that can help

To help correct borrower frustration and confusion, ING developed an interactive tool for homebuyers to help them better navigate and understand the GFE. Clear Orange is a website dedicated to the GFE:

Clear Orange makes the costs associated with the GFE easier to understand by simplifying technical mortgage jargon, highlighting which mortgage costs are unavoidable and distinguishing between fees based on a home’s purchase price.  Visitors to the site have the option of printing out an easy to understand Good Faith Estimate explanation that they can use while reviewing their own GFE. This document breaks down the technical terms found in the GFE. Additionally, Clear Orange walks users through a step by step tutorial of closing costs that explains why they are charged and who charges for them. 

I just wanted to note that I’m not promoting ING’s new GFE website, rather merely sharing it in hopes it will improve your mortgage shopping experience.

“Even though the ‘new’ version of the GFE is superior to yesterday’s ‘display-any-way,’ freeform disclosure,” says Gumbinger, ”it falls short of what is still a lofty goal of making mortgage-comparison shopping simpler. It’s little wonder then that the first item the new Consumer Financial Protection Bureau is expected to tackle is mortgage disclosure reform.”

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3 Responses to “The GFE is a “waste of time””

  1. Dennis Says: May 14th, 2011 at 12:30 pm

    The Good Faith Estimate revision imposed by HUD in 2010 is confusing and does add any additional understanding to mortgage applicants. In typical government fashion HUD took the prior one page GFE and turned into three pages. The intent of the form is to properly inform consumers. Ignorance of the actual application process is evident in the execution as HUD doesn’t even require a signature on the form—those who hid fees before can still do so since there is no requirement by HUD showing the consumer saw the GFE.

    Had HUD simply taken a look at the California Mortgage Loan Disclosure Statement (MLDS,)that is currently only required of brokers, and applied it to all originators it could have achieved its objective of breaking out for borrowers what is paid to the originator and what is paid to others.

    The more government agencies react to circumstances that happened five, six, seven years ago the more paperwork they add to the process, the more confused consumers are and the less efficient our process to deliver quality mortgage products and rates to mortgage applicants.

  2. Zbarney Says: May 16th, 2011 at 9:58 am

    There are a few other reasons why people don’t like the GFE.

    1-The layout is ridiculous. Why put UFMIP, for example, as part of settlement charges? I find most borrowers assume that they will be charged this out of pocket.
    2-Lenders are required to honor the GFE, and there are certain criteria that they are expected to have before issuing it, such as a credit score. With many borrowers not wanting their credit run multiple times, issuing a GFE is a huge risk to a lender
    3-Since many brokers and lenders either do not issue a GFE, or mess with their GFE numbers illegally, issuing a real GFE is a risk for an L.O., as they will likely be perceived as more expensive.

    I dislike GFEs for the above 3 reasons. While the intent is good, until the government requires one to be issued upfront and changes the format, it will be frivolous busywork

  3. Another Good Faith Estimate | Salt Lake City Mortgage – Salt Lake City, Utah Says: May 18th, 2011 at 7:28 pm

    [...] The GFE is a “waste of time” (The HSH Blog) [...]

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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